LITTLE ROCK — Arkansas Best Corp. on Friday blamed lower tonnage levels and costs associated with its next-day, second-day services for hampering third-quarter profits.
The Fort Smith-based holding company reported profit of $18.92 million, or 75 cents per share, a 40 percent decline compared with $31.55 million, or $1.24 per share, for the sameyear-ago quarter that ended Sept. 30, 2006.
Arkansas Best missed the average earnings estimate of 88 cents per share from nine analysts surveyed by Thomson Financial.
The owner of three subsidiaries, including ABF Freight System Inc., reported a 5 percent decrease in revenue to $479.82 million from $507.31 million.
Robert A. Davidson, Arkansas Best's president and chiefexecutive officer, predicted further weakness in the economy in a conference call with analysts.
"We're no longer listening to those who tell us good times are around the corner," he said.
For its less-than-truckload business, tonnage fell 5.8 percent to 885,590 tons from 940,357 tons in the same yearago period. As a result, the carrier picked up more truckload business and sold off oldertrucks as part of an alignment to match the number of trucks with the amount of business it's doing.
"We were discouraging that [truckload] traffic in 2006, but as we got into the fourth quarter [of 2007], we're finding it useful in terms of balancing empty miles and capacity utilization," Davidson said.
ABF Freight Systems Inc. reported a third-quarter operating ratio of 93.8, compared with 90in the same year-ago period. The efficiency ratio, which divides operating expenses by operating revenue, measures a carrier's profit margin. The lower the number, the better the performance.
Davidson said the next-day, second-day business showed a better tonnage trend than its traditional long-haul market. The carrier began marketing its "regional performancemodel," or next-day, second day services, on a limited basis in June 2005.
Costs associated with that new service, however, increased because of its expansion, said David Humphrey, an Arkansas Best spokesman.
"In last year's third quarter and this year, [next-day, second-day services] ramped up more, so the costs are higher," Humphrey said.
The company attributed a $5.7 million increase in operating costs to the fast-growing initiative that represented 45.4 percent of its business, compared with 43.7 percent in the third quarter of 2007, he said.
Without the costs of the regional performance model factored in, the operating ratio would have been 92.5, he said.
The carrier also said workers' compensation costs hurt its performance but a decrease in its accident insurance offset the effect.
Humphrey said insurance costs fluctuate from quarter to quarter, but in the broader picture they were in line with historical averages.
Arkansas Best shares fell 44 cents, or 1.38 percent, to $30.82 on Friday on the Nasdaq.
Business, Pages 37, 42 on 10/27/2007